Intel CEO discusses fine, admits Atom bundling discounts

During a conference call today, Intel CEO Paul Otellini and spokesman Chuck Malloy spoke to the press about the European Commission’s $1.44 billion fine. Intel reiterated its strong disagreement with the ruling and its plan to appeal the decision. The firm also talked a little bit about the ongoing U.S. antitrust investigation and discount policies.

According to Otellini, Intel only offers volume-based discounts, and the European Commission hasn’t found evidence of exclusive deals with customers. The CEO also challenged the Commission’s allegations of harm to consumers and competitors. "It’s hard to imagine how consumers were harmed in an industry which has lowered cost of computing by a factor of 100 during the term of this case," he remarked, "and at the same time that happened, AMD claims that it’s more vibrant than ever."

When asked whether Intel was concerned about similar action from U.S. regulators, Otellini sounded less sure of himself:

Well, there is an investigation . . . at the [U.S. Federal Trade Commission]; there’s also one in the United States by the New York Attorney General’s office. Intel is fully cooperating with both of those . . . we’re producing evidence, we produce testimonies, depositions, and so forth. The FTC has had a position on anti-trust which is very much comparable, I think, to the EU’s, so we’re actually being looked at under the same lens today by both parties.

Would the European Commission’s decision make similar action in the U.S. more likely? "I think you need to ask the FTC that, but . . .the FTC will look at, I hope, the preponderance of the evidence, and perhaps draw a different conclusion," he responded.

Otellini went on to note that the U.S. investigation is still only an investigation and that Intel has been investigated before with no ill effects. As for rulings in the EU and Korea (which fined the chipmaker around $25 million last June), Intel is confident that it will be cleared by the appeal process.

Finally, still on the topic of discounts and rebates, Otellini made an interesting comment when asked about Atom bundling in relation to Nvidia’s Ion chipset:

On occasion, we’ll sell a combination of microprocessor and chipset and other chips at a price which is more favorable than if people bought the products independently. They have a right to buy the products independently, they have every right to mix and match products, but we believe that, relative to our CPU-chipset pricing, that there’s no harm nor foul there.

When asked to clarify, he said, "We have historically offered better pricing to people that buy more products. Nothing new there." So, essentially, Intel is making Nvidia’s job more difficult by offering discounts when customers buy Atom processors together with Intel chipsets. On the other side of the coin, Nvidia has told us that Ion-based systems should only be marginally more expensive than their Intel-only counterparts. Nvidia expects more than 40 Ion-based systems to be released by the end of next quarter.

All of you that applaud the European Commission probably do not live in Europe.

This is all simple robbery, like everyone of us are suffering via taxes or sanctions. Try to put and small business in Europe and you will suffer the same shit that Intel but in a small scale.

This euro-thrash people are no more than thiefs and you are going to buy your new chips in the future $1.44 billion more expensive.

epe

10 years ago

And i can assure you if Intel were the only company you would be paying right now 3 billion more expensive processor! Don’t you think that would be a true robbery? That’s what Intel trash-people wants ‘Be the unique cpu builder to domain entire market and price their chips as high as they want’

joselillo_25

10 years ago

“And i can assure you if Intel were the only company you would be paying right now 3 billion more expensive processor! Don’t you think that would be a true robbery?”

Absolutely not! If Intel is the only company in the CPU market is because no one can bring better and cheaper chips to the people, why they cannot sing exclusive contracts with partners? It is like some sportsmen that only can use clothes of one manufacturer.

In the moment they raise prices they are not only increasing margins but also giving the competition the opportunity to enter in the business.

Why Microsoft never priced windows at $5000?

A monopoly cannot subsist if the monopolist company rises prices ad infinitum.

FubbHead

10 years ago

Instead of fining them, they should’ve just punish them by making their x86 patents invalid.

Wintermane

10 years ago

One thing to remember is there IS a big difference between intel and intels sales people.

Its entirely possible that to keep thier jobs or bonuses some intel sales drones made deals to push more chips.

designerfx

10 years ago

read carefully. Notice how not once do they deny having done these volume discounts. They do of course, say that they never harmed consumers, but I think that part’s been pretty clear by now.

Next up: MS for making requirements on hardware for netbooks, and for bundling in a crappy version of virtualization.

MadManOriginal

10 years ago

Umm, you’re right, in fact Otellini stated very clearly that Intel does provide volume discounts just like pretty much any other company.

Buub

10 years ago

Except it’s not the same as every other company.

How many other companies exist in a market where this is a defacto duopoly, where you can get a vital commodity from only one of two sources. And the larger of those sources is using its larger capitalization to pay customers not to use products from its competitor.

Doesn’t sound like every other company to me. In fact, it’s a market condition that very few companies could enter even if they wanted to.

MadManOriginal

10 years ago

You’re equating volume discounts with ‘pay(ing) customers not to use products from its competitor.’ If you read the details of the findings you’ll see that what Intel has been accused of goes beyond simple volume discounts so volume discounts and essentially bribery should not be interchanged as you’re trying to do.

FubbHead

10 years ago

Wipe that smile off your face, thank you.

ronch

10 years ago

Even without these discounts/threats by Intel, it’s obvious Intel wants no competitors in the x86 market:

Remember the days when AMD simply cloned Intel chips? AMD was given a right to do so because IBM wanted a second source for its CPUs. When AMD seemed to be having better-than-expected success selling its 486 clones, Intel sued them to drive them out or weaken them financially (they probably know they won’t win this one, but using these tactics to drive a competitor to its knees is obviously immoral).

So after a crazy roller-coaster ride with Intel’s legal dept., AMD decided to make its own CPU designs. Then what happens? When Intel notices that AMD is getting pretty good at it (Athlon, Athlon64, etc.), they want to strip AMD of their x86 license!

Granted, AMD shot themselves in the foot a few times, but the arguements above tell us Intel deliberately wanted to shut AMD out.

Another example of why Intel hates competition and wants to shut them out:

Remember IBM’s Blue Lightning? Because of Intel and IBM’s extensive cross-licensing agreement, IBM has the right to produce x86 CPUs. IBM’s Blue Lightning was a clone of Intel’s i486. Intel knew IBM had the financial muscle to give them nightmares so Intel told IBM they could only sell BL chips bundled with motherboards (or something like that), and not as separate units.

And yet another:

Cyrix. They didn’t copy Intel’s i486, but instead reverse-engineered them. I can’t remember the details of this spat with Cyrix that well. Maybe Cyrix infringed on some Intel patents or something. What puzzles me is how Intel would know Cyrix breaches patents. White papers? Documentation? Did Intel pop open a Cyrix chip and saw the microscopic traces and thought some of those infringed their patents?

My next CPU will definitely be an AMD Phenom II. I just wanna do my share on trying to make computers affordable for everyone instead of just satisfying my own desires for speed. Besides, i7 is too expensive. Intel can’t drive Phenom II out of the market by lowering i7 pricing because if they do that they’d also kill their Core 2 Quad.

thebeastie

10 years ago

Well said points.
And the same issues go on with Intel constantly changing the rules for its competitors, NVidia is the next victim. They payed up big time just to have the right to make motherboard chipsets for Intel CPUs which you would think you wouldn’t need the right in the first place. The NVidia based motherboards have been very good often the best performing and sought after.
Sure enough Intel has changed the rules on this and now with its Nehalem based CPUs it has said because you have to do even less with the motherboard chipsets then before then you must give us more money for the right to do so. There is just simply no end to the unfairness.
Any time Intel feels under threat it can just add on some new x86 instructions and twist and turn in more rules and license demands.

When you look at other industries were we have more choice you have to wonder why? How about the simple family car? So many car choices out there.
Did any one patent the idea of 4 wheels? The size of roads or how driving should be? no that would be ridiculous but sure enough Intel owns our personal computer based “roads”. No one else is allowed to make any thing compatible with out killer consequences.
And it the eyes of the law it appears this is the right thing to do?

ludi

10 years ago

If Cyrix, with far less engineering resources than Intel, could reverse-engineer the processes of an Intel chip and make a working clone, what would hinder Intel from deconstructing the Cyrix chip and determining that its operation was compliant with Intel intellectual property?

For some patents, it might not even be necessary to inspect the physical hardware — simply craft a few machine code routines, run them through the CPU, and verify that it handles them according to protected x86 intellectual property.

Buub

10 years ago

You don’t have to deconstruct a processor on the molecular/physical level to make a functional clone of it. You simply need to build something that behaves exactly the same under all expected circumstances.

This means you reverse engineer it logically and functionally, not physically. To examine the physical molecular construction of the processor core would require magnitudes more effort and time.

ludi

10 years ago

Certainly. However, if required in order to understand how a functional block of circuitry is layed out, or in trying to discover whether a proprietary fabrication technique has been used, it is not excessively difficult to put the circuit under a high power microscope and take some photographic evidence, and even dissect the circuit by layers before doing so. Expensive, but not difficult.

WillBach

10 years ago

Some forum goes have asked about Intel’s volume discounts, so I’ll address the question as best I can. It’s generally not illegal to give a discount to customers who place large orders. Here’s how things get illegal:

Say a PC manufacturer (let’s call it Ledd) has the resources (employees, RAM, OS licenses, etc.) to produce 1000 computers a month, and it’s planning on buying 700 Intel processors and 300 AMD processors. Then Intel’s sales rep says, “if you buy 1000 of our processors instead of 700, we’ll give you a 31% discount on your order, so it would be like you were paying for only 690 processors instead of 700.” That means that (if the processors cost the same amount) AMD would have to give Ledd a 103.3% discount to compete.

It’s possible that the sales rep was acting out of a sense of charity, or that Intel’s processors arrive from the fabs in palates of 1000 and its cheeper to sell them all rather than unpack them. Maybe the sales rep broke his keyboard and now only the “1” and “0” keys work, and he can’t afford to replace it without driving a smaller competitor out of business. It can be very difficult to prove that such discounts are motivated by a desire to manipulate the market.

There’s a sliding scale of how illegal things are. It depends on the size of the companies involved, and it depends on how steep the discounts are, and what strings are attached. There are cases where Intel (allegedly) sold processors at a loss to keep AMD processors out of certain business. There is strong evidence that Intel paid atleast one retail store chain (MediaMarkt) not to sell AMD processors (that’s kind of blatantly illegal). Harder to prove, but also alleged, Intel threatened to stop giving volume discounts to companies who sold AMD chips, threatened to withhold chipset shipments from motherboard makers who advertised AMD compatibility, threatened to give free processors and chipsets to the competitors of OEMs who were thinking of selling AMD processors.

The example in your second paragraph is exactly what I was thinking with volume discounts that have the same effect as specifiying a minimum percentage of CPUs must be from Intel. I can see how the latter would be illegal but I’m not sure if being extremely smart with precise volume discounts could be considered illegal even if the effect is the same because there’s no clear intent without additional documentation saying so.

PeterD

10 years ago

About MediaMarket: they have been convicted in Belgium because the sold second hand material as new material. Not exactly a chain I would trust.

pogsnet

10 years ago

designerfx

10 years ago

People want more choice than intel, you’d have to be a very stupid retailer to only carry a single company – there is no benefit to cutting out choice from your customers in that way, really.

thebeastie

10 years ago

Gee with lines like “an industry which has lowered cost of computing by a factor of 100” you just know he is choc-full of it and he has it all ready to go 🙂

Faceless Clock

10 years ago

Intel sounds worried. I guess they should be. This fine is not small and investors are going to be skittish.

Rakhmaninov3

10 years ago

I hope they go down hard.

bdwilcox

10 years ago

“It’s hard to imagine how consumers were harmed in an industry which has lowered cost of computing by a factor of 100 during the term of this case,” he remarked, “and at the same time that happened, AMD claims that it’s more vibrant than ever.”

What a deflection artist. Gee, I don’t know. Maybe if Intel hadn’t choked competition by using bully tactics, computing costs might have been lowered by a factor of a 1,000 instead of 100 and AMD might be in a lot better shape than it is now even though it persevered through Intel’s strong-arm tactics. It’s like saying, “After I broke her legs, she still gets around in her wheelchair, so it’s all good!”

hapyman

10 years ago

Haha that is great.

“Hey maybe she will walk again some day… maybe she won’t. Either way I didn’t kill her.”

ronch

10 years ago

I don’t think they did any harm to consumers by lowering prices, but in the long term, by killing off AMD they can again raise their prices to sky-high levels. I just dug out an old PC magazine and saw all those expensive PCs ranging from $1800 to $2800. That was the era of the Pentium II when no other chip company can touch Intel’s baby.

The world will be a better place for all computer users with AMD around. I’m sure nobody can argue with that.

MadManOriginal

10 years ago

AMD existed during the Pentium II era smart guy. PCs built around AMD CPUs were cheaper but it was generally in proportion to performance. An AMD PC of the time would cost a higher amount than one today as well. Were there any ads directly from Intel in the magazine? Were there any directly from AMD? Marketing to the general public has always been AMDs weak point.

SPOOFE

10 years ago

” if Intel hadn’t choked competition by using bully tactics, computing costs might have been lowered by a factor of a 1,000 instead of 100″

On the other hand, if Intel hadn’t been distracted by AMD and silly antitrust rulings, computing costs might have been lowered by a factor of FIVE HUNDRED TRILLION instead of 100.

But then, it’s not very hard to make up wild hypothetical situations, is it?

danny e.

10 years ago

apple sucks.

danny e.

10 years ago

durian rules! yeah baby.

snakeoil

10 years ago

right, apple smells, fine them too

danny e.

10 years ago

I’m sure the US will not do the same. .. initially. However, Obama will then step in as he has been keen to do lately and overrule the FTC (he also needs money much like the EU to run his socialist regime).

paulWTAMU

10 years ago

R&P on the front page? tsk tsk.

5150

10 years ago

Thank you Joe D. Plumber.

eitje

10 years ago

your MOM will then step in…

BoBzeBuilder

10 years ago

HAHAHAHAHAHA. Nice.

Faceless Clock

10 years ago

You’re so cute.

Anomymous Gerbil

10 years ago

Oh dear.

grantmeaname

10 years ago

do you have any idea how much money $1B is to the US government?

Yeah, that’s what I thought.

Darkmage

10 years ago

“Not enough” is probably the right answer.

derFunkenstein

10 years ago

infinite reserves would never be enough.

Meadows

10 years ago

Finished elementary yet?

Grigory

10 years ago

Call it a hunch but something tells me that Obama and his accomplices will use other means to install and maintain their socialist regime.

Scrotos

10 years ago

Well, regardless of the details, you know no Intel official is going to say anything remotely resembling, “doh, you guys found us out!” He’ll say everything he needs to say to keep Intel’s stockholders happy and their share price as high as possible.

edit: I guess I missed the “reply” button, but this works on its own, too